Shareholders Can Cure Too Big to Fail

Investors will get far better returns if they press the biggest banks to spin off their trading and investment banking business.

By

Phil Purcell

June 25, 2012 7:20 p.m. ET

There are many reasons people give for breaking up financial institutions that are "too big to fail." It would reduce their complexity, making it less likely they would fail in first place. And ending the government's implicit subsidies to these behemoths means they would no longer enjoy a lower cost of borrowing funds—a competitive advantage that now leads them to grow bigger.